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Update: RBI's Guidelines on Digital Lending
Update: RBI's Guidelines on Digital Lending

September 5, 2022

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In January 2021, the Reserve Bank of India (RBI) had constituted a working group on digital lending including lending through online platforms and mobile apps (WGDL). The objective of the working group was to – evaluate kinds of digital lending activities and their penetration, identify risks posed by unregulated digital lending platforms, recommend regulatory changes and measures for regulating digital lending, recommend a fair practices code for digital lending players, enhanced consumer protection, and measures for robust data governance and privacy measures. The Report, released in November, had made suggestions on barring first loss default guarantee, setting up self-regulatory organisations (SRO), requiring disbursement of loans directly to the bank account of borrowers, cooling off period for exiting digitally obtained loans amongst others.

Pursuant to this, the RBI had released a set of recommendations on Digital Lending highlighting the recommendations which would be implemented immediately, have to be thought out in detail, and have to be released by the Central Government or any other relevant regulator. Now, subject to the recommendations in Annex I, the RBI has released guidelines on Digital Lending under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, the National Housing Bank Act, 1987, the Factoring Regulation Act, 2011, and the Credit Information Companies (Regulation) Act, 2005.

Key features of the Digital Lending Regulations

  • The guidelines are applicable on digital lending extended by the following regulated entities (REs) – all commercial banks, primary urban corporative banks, state cooperative banks, district central banks and non-banking financial companies (NBFCs).
  • Digital lending has been defined as “ a remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.”
  • Pass through/ pool accounts: Loan servicing, repayment etc. has to be done directly to the RE’s bank account. Pass through or pool accounts of any third party shall not be used for the same. However, co-lending transactions shall be governed by the Circular on Co-Lending by Banks and NBFCs (2020).
  • Key fact statement: Before the execution of the contract, the RE shall ensure that – recover mechanism, annual percentage rate, grievance redressal officer, any fees charges etc. is disclosed to the borrower in the form of a key fact statement as provided by the RBI.
  • REs will be required to display product information at on-boarding stage – about the product features, loan limit etc.
  • It will have to be ensured that a grievance redressal officer has been appointed by the RE to deal with FinTech/digital lending related complaints. Contact details of such officers shall have to be displayed prominently on the websites of the RE, its lending service providers (LSPs) and Digital Lending Apps (DLAs).
  • A cooling off period shall have to provided explicitly to exit the digital loan. This period shall be determined by the RE.
  • Need based data collection and consent framework – It will be ensured that only needed data is collected by REs, DLAs and LSPs, and only after explicit prior consent of the borrower. Such consent should have an audit trail. The borrower has to be provided with an option to give or deny consent for use of specific data, disclosure, retention etc.

 

For more information, kindly write to apurva@nasscom.in.

You can read NASSCOM’s recommendations on the WGDL here.

 

 


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Apurva Singh
Senior Policy Associate

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